The company was set up in 1823 in Forth Street, Newcastle-upon-Tyne in England by George Stephenson, his son Robert, with Edward Pease and Michael Longridge (the owner of the ironworks at Bedlington). It was founded as part of their construction of the Stockton and Darlington Railway. The manager of the works for a while was James Kennedy.
The company's first engine was Locomotion No 1, which opened the Stockton and Darlington, followed by three more: Hope, Black Diamond, and Diligence. Their vertical cylinders meant these locomotives rocked excessively and at the Hetton colliery railway Stephenson had introduced "steam springs" which had proved unsatisfactory. In 1828 he introduced the "Experiment" with inclined cylinders, which improved stability, and meant that it could be mounted on springs. Originally four wheeled, it was modified for six and another example, Victory, was built. Around this time, two locomotives were built for America. The first, a four coupled loco named America, was ordered by the Delaware and Hudson Railroad. The second, six-coupled and named Whistler, was built for the Boston and Providence Rail Road in 1833.
In October 1829 Stephenson's Rocket won the Rainhill Trials. This locomotive engine had two notable improvements - a multi-tube boiler and a separate firebox. Originally angled, the cylinders were later made horizontal. The Invicta was the twentieth, and was built for the Canterbury and Whitstable Railway. Its cylinders were inclined, but moved to the front (chimney) end. In 1830 came the Planet class with the cylinders inside the frames, followed by the Patentee which added a pair of trailing wheels for greater stability with a larger boiler. This 2-2-2 design became the pattern for most locomotives, by many makers, for many years.
The increased distance travelled by many trains highlighted problems with the fireboxes and chimneys. With the co-operation of the North Midland Railway at their Derby works, he measured the temperature of the exhaust gases, and decided to lengthen the boilers on future engines. Initially these "long-boiler" engines were 2-2-2 designs, but in 1844, Stephenson moved the trailing wheel to the front in 4-2-0 formation, so that the cylinders could be mounted between the supporting wheels. It was one of these, the "Great A" along with another from the North Midland Railway, which was compared with Brunel's "Ixion" in the gauge trials in 1846. In 1846 he added a pair of trailing wheels - the first with eight wheels. Another important innovation in 1842 was the Stephenson link motion.